Month February 2010

10 months ago Ms. Huberty released her price target for April 2010 (see graph) at between $100 and $105. The stock was trading at $121 then and her forecast was for a 14% decline.

She wrote:

Investment Conclusion: The combination of a March quarter beat and positive management tone is likely to keep AAPL shares in its recent trading range. Valuation is not stretched by any means but at 21x our adjusted C09 EPS, the market already assigns AAPL a 16% premium to RIMM which credits AAPL for lower risk given its large cash balance and a more diversified revenue model. We remain Equal-weight AAPL shares.

We note that the stock is currently trading above $200 at a P/E of 19x. She had forecast a price of $100 on a P/E of 21x Calendar 2009 Earnings Per Share. The implication is that EPS would have been $100/21 or $4.7 for calendar 2009.

She already had one quarter of data ($1.79 for CQ1) therefore she forecast $4.7-$1.79 = $2.97 for the remainder of the 2009 calendar year.

In reality, Apple earned $10.24 for 2009 and $8.45 for CQ2 through CQ4. That makes her error ($8.45-$2.97)/$2.97 = 184%.

We see today that she has a new forecast for $225 a share which leads us to conclude that she still has a job.

Dave Whalen and I just returned from a very successful meeting with Verizon Wireless, where they acknowledged that their execution of our launch was below expectations and recommitted to working with us to improve sales. To accelerate sales, we initiated Project JumpStart nearly three weeks ago. Since then, nearly two hundred Palm Brand Ambassadors, supplemented by Palm employees from Sunnyvale, have been training Verizon sales reps across the U.S. on our products. Early results from the stores have already shown improvement on product knowledge and sales week over week. You may have also seen a growing number of Palm ads on billboards, bus shelters, buses, and subway stations-all getting the word out about Palm.

We’ve chosen to withdraw Skype Lite and Skype for Windows Mobile because we want to offer our new customers an improved mobile experience – much like the version that has proved so popular on the iPhone, and which is now available on Symbian phones.

If we assume 45 million iPhone users by time of launch (42 million units have been sold as of end of December) and 15% would buy iPads it would therefore not be unreasonable to assume about 7 million iPads will go to iPhone users alone.

Being conservative, let’s round that down to 5 million. This does seem quite a bit more than the 2 million most analysts are forecasting. I’m partial to 5 million but I might now be inclined to increase that to maybe 7 to account for a portion of 33 million iPod touch users.

The aggressive scenario would see 16% of the 75 million iPhone + iPod touch installed base buying an iPad–resulting in 12 million units.

All data in the feature section is based on an opt-in survey taken by users on their mobile device.

Respondents were sourced by responding to mobile ads throughout AdMob’s iPhone OS, Android and webOS networks. There was no incentive offered to participate in the survey.

There were 963 total respondents: 318 Android, 244 iPhone, 356 iPod touch and 45 webOS. The survey was run from February 5th – February 16th.

The geographic representation of the respondents was designed to approximate the distribution of users in the AdMob network. The respondents were sourced from English-speaking countries in the AdMob network.

If we assume $1 billion/yr. revenues, that works out to about 3 million smartphones a year out of a market that Gartner just forecast to be 215 million this year. That gives Palm just 1.4% share of smartphones.

The WebOS is a fine piece of code, but one has to understand that success in this business is not just doing something right. You have to do everything right:

Nokia has great distribution and logistics, not so good software or platform story

Palm has great software, not so good distribution or platform

RIM has great distribution and service, not so great software

Android has good software but not great integration of solution

Apple’s software and platform are great, but distribution is still weak

Microsoft has nothing good at all

The question of acquisition invariably comes up. The obvious answer would be to pair Palm with somebody who needs what they have and who has what they don’t. Unfortunately no perfect fit arises.

Feb. 25 (Bloomberg) — Palm Inc. said it expects that adjusted revenue for the third quarter of fiscal year 2010 will be in the range of $300 million to $320 million. The average estimate of analyts surveyed by Bloomberg was for adjusted third-quarter revenue of $409.3 million. The company said revenue for the quarter and full year are being affected by “slower than expected consumer adoption of the company’s products.”

The last four months have seen tremendous app growth. Apple grew by 59k apps while Android added nearly 10k and Nokia added 5.5k apps to Ovi.

As a percent, Palm grew the fastest with 1,352%, followed by Ovi with 827%. The slowest growing was actually Blackberry App World with a mere 56% growth.

More curious is the popularity of certain categories. Games and Books are dominant in the App Store, while Personalization and Music account for more than half of Ovi (ringtones and wallpapers?)

Finally, in terms of catalog ranking overall, Ovi climbed the league table to third spot behind Apple and Android and overtaking Blackberry App World. Palm overtook Windows Mobile Marketplace which is now dead last with 693 apps.

Sales of H.P.’s hand-held products, including its iPaq smartphone, dropped to $25 million in the quarter, down from $57 million in the same period last year. Apple, by contrast, had sales of $5.6 billion for iPhones and related products during its most recent quarter.

To put it in more perspective, $25 million at an ASP of $350 a phone means HP sold about 70k phones last quarter, or what Apple sold every 17 hours.

Tim Cook confirmed at a Goldman Sachs press conference yesterday that Apple is calling themselves a “mobile device company” officially. The “traditional model” of having companies sell different things — hardware, software, peripherals — just doesn’t work on today’s world, according to Cook. So Apple is no longer a computer company, or an OS maker, or a media giant. Its main focus is mobile devices.